passively On average, actively managed mutual funds have tended to managed index funds. 1) outperform 2) perform equivalently to 3) underperform 4) No consistent relationship between the performance of actively managed funds and index funds has been documented On average, actively managed mutual funds have tended to managed index funds. passively 1) outperform 2) perform equivalently to 3) underperform No consistent relationship between the performance of actively managed funds and index funds has been documented uestion 3 (0.5 points) In the popular game "Deal or No Deal", a player is facing five remaining cases, with $1,000,000, $1,000, $75, $5 and $0.01, and the banker has just offered him $201,000. If he is a rational risk averse investor, he should: 1) Deal 2) NO deal 3) Depends on how risk averse he is 4) Ask friends and relatives at the scene In the same game as above, if the banker has just offered him $150,000 and he does not take the deal, but you think you would deal if you were him, then which of the following is correct? 1) you are smarter than him 2) you are less risk averse than him 3) you are more rational than him 4) you are more risk averse than him Historically small-firm stocks have earned higher returns than large-firm stocks. This is consistent with 1) small firms are better investments than large firms 2) government subsidies available to small firms produce effects that are discernible in stock market statistics 3) small firms are riskier than large firms 4) large firms are not being accurately represented in the data What is the expected return (mean) on this stock? Scenario Probability Return 1 1 .1 -.05 2 .4 .05 3 .5 .15 1) 5% 2) 7% 3) 9% 4) 15% What is the standard deviation of its return? Scenario Probability Return 1. .1 -.05 2. .4 .05 3. .5 1.15 1) 44% O2) 15.75% 3) 6.63% 4) 0.44% ) What is the likelihood for return being less than -3%? Scenario 1. 2. 3. Probability .1 .4 .5 Return -.05 05 .15 0 1 0 2) 3% 3) 10% 4) 25% In a Dutch auction of an IPO, the total offering is for 10 million shares. The following bids are received. What price will bidder D pay in the end of the auction? Bidder A: 2million shares @ $105/share Bidder B: 3million shares @ $106/share Bidder C: 1 million shares @ $95/share Bidder D: 4 million shares @ $97/share Bidder E: 5 million shares @ $93/share 1) $95/share 2) $93/share 3) $97/share 4) D did not win the bid, so pays nothing XYZ stock is currently quoted as $55.20 bid and $55.22 ask. You bought 820 shares at $54.92 yesterday, and don't think selling at the current price will justify a good enough profit. To earn a good enough profit, what kind of order among the followings should you place now? 1) limit sell order for 820 shares at $ 55. 2) limit sell order for 820 shares at $ 58. 3) market sell order for 820 shares 4) stop-loss sell order for 820 shares at $55. In a market with dealers, the quoted bid price of a stock is 1) the price at which the dealer is willing to sell the stock 2) the price at which the dealer is willing to buy the stock 3) greater than the ask price of the stock 4) the price at which the investor can buy the stock with a market order Mutual funds guarantee investors 1) a minimum rate of return a 2) a minimum price a 3) to buy their shares back upon request 4) to earn the rate promised in the prospectus A mutual fund ABC had a NAV of $29.97 as of yesterday's closing and a NAV of $30.11 as of today's closing. An order to buy 1000 shares of ABC received at 10:00 am EST yesterday would get executed at 1) $29.97 2) $30.11 3) it should be ABC's closing NAV the day before yesterday 4) none of the above, because only NAV is given, not price. In the above question, an order to buy 1000 shares of ABC received at 5:00pm EST yesterday would get executed at 1) $29.97 2) $30.11 3) it should be ABC's closing NAV tomorrow. 4) none of the above, because only NAV is given, not price. Venture capital firms are prohibited from selling their shares of an IPO firm before the expiration date of the lock up period. 1) True 2) False Question 16 (0.5 points) One risk of submitting a market order is that the actual execution price might move adversely between the time when the order is submitted and the time when the order is received by the market maker. 1) True 2) False Market makers must trade at their quoted bid and ask prices for no matter how many shares investors want to trade. 1) True 2) False Question 18 (0.5 points) Brokerage commission is the only cost investors bear when they trade. 1) True 2) False Investors can bypass brokerage firms when their orders are sent to a limit order book market like the BATS exchange for execution. 1) True 2) False Question 20 (0.5 points) No load mutual funds do not charge any fees. 1) True 2) False Investment is about stock picking, therefore, security selection is the most important aspect of investment. 1) True 2) False Question 22 (0.5 points) An investor needs to open a cash account with her brokerage firm in order to be able to buy on margin. 1) True 2) False Question 23 (2 points) Please compare the traditional process of IPO with the Dutch auction format of IPO. A/ Question 24 (3 points) Please compare the differences and similarities among mutual funds, hedge funds and Exchange Traded Funds. 15 18 As an investor, you just bought 200 shares of ABC at $20/share. Ignore brokerage commission. You chipped in $2500 yourself, and borrowed the rest from your broker. Nothing else is on your account. Please label your answers 1-5. 1. Suppose you sell the 200 shares of ABC when its price appreciates 20% and pay off your broker. If the interest payment for this time period is $100, what is the return (in %, on your investment? 2. Suppose you are forced to sell the 200 shares of ABC when its price depreciates 20% from the original $20/share. If the interest payment for this time period is $100, what is the return on your investment? 3. What does the answers from 1. and 2. say about buying on margin? 4. Suppose instead of buying 200 shares of ABC at $20/share, you shorted 200 shares at $20/share. You had $2500 cash on the account and nothing else. When will you more likely to get a margin call from your broker, ABC's price goes up to a certain level or goes down to a certain level? 5. Continue from 4., even if your margin stays above the required maintenance level, can your broker still call you to cover your short position? Why? Explain A/ There are three stocks, A, B, C. Each stock's return follows a normal distribution. In addition, for any normal distribution, the following holds: Prob [E(r) - 0